Q. I started looking for a house in Charlotte last year but decided to take some time off and have recently started looking again. I found a home I like however I’m being told that I must pay Due Diligence money to the seller for a Due Diligence Period. What is a Due Diligence Fee and a Due Diligence Period? – LQ
A. Starting January 1, 2011, the North Carolina statewide real estate contract (used in 90% of real estate purchases) was changed to include a Due Diligence Period and Due Diligence Fee. Prior to January, after a buyer placed a home under contract, they had a series of milestones (dates) that would enable them to cancel the contract and receive their Earnest Money back from the seller. Now, you have just one date and that is the Due Diligence Period.
After you have reached an agreement with a Seller and the home is under contract, the clock starts on your Due Diligence Period. During this time, you must complete any inspections, appraisal, order surveys, order title, negotiate inspection repair items, complete any lender requirements and uncover any reason that would prevent you from purchasing the house. If you have uncovered a reason during this period (or if you have no reason whatsoever) and wish to back out, you can without any ramifications so long as it is prior to the end of the Due Diligence Period.
Once the Due Diligence Period expires, if a Buyer decides to walk away, they will forfeit their Earnest Money as well to the Seller (except in cases where the Seller committed a material breach of the contract).
In exchange for the Due Diligence Period, a Due Diligence Fee is collected at the time of contract and paid directly to the Seller. It is NON-REFUNDABLE. There is no standard amount. Some sellers may consider zero, others may want a few hundred dollars. A real estate school here in Charlotte was pushing a Due Diligence fee that was equal to one month’s rent – which I think is WAY too high given the real estate market today.
While the money is non-refundable, the Due Diligence fee is credited back to the Buyer from the Seller at closing. So if the Buyer gave $100 in Due Diligence money at the time of contract, the Seller would credit the Buyer $100 at closing.
If find yourselves involved in a Multiple Offer Situation and you want the house, consider offering the Seller more Due Diligence money as an incentive to take your offer. Again, exercise caution with this.
There are exceptions to this. Short Sale properties are prohibited from Due Diligence money and most bank owned properties (foreclosures) are not requiring Due Diligence money as well. New Construction (new build or builder-inventory) also typically do not involve Due Diligence money.
So, in summary, the Due Diligence Money is a fee paid to the Seller at the time of Contract essentially to buy you time while you conduct your personal Due Diligence (whether you want to / are able to purchase this home or not).